Economist: Manufacturing Revives in 2016’s Second Half

PALM DESERT, CA – The US manufacturing economy will revive in the year’s second half, helped by stabilizing energy prices and reviving demand in China, an economist said today.

“We’re about out of the woods,” Alan Beaulieu, president of ITR Economics, said during a presentation at the MFG Meeting in Palm Desert, CA. “We are not looking at a recession in manufacturing in the United States.”

Referring to the audience of manufacturing company owners and executives, he said: “Life is going to be good for you.”

In 2015, falling oil prices, a strong dollar and weakening demand for products in China all contributed to a slowdown for US manufacturing.

Energy prices hurt demand for products used in oil and gas exploration. The high dollar made products more expensive in international markets. Declining Chinese demand hurt manufacturers, such as Caterpillar Inc. (Peoria, IL), who look to China as a major source of sales.

With oil, “We’re going to see production decline, we’re going to see production capped,” Beaulieu said. “It’s going to improve around June.” He forecast that oil prices will reach $41 a barrel by the end of 2015 and go to $45 a barrel next year. Oil prices currently are around $35 a barrel.

The economist also forecast an improving economy in China.

“I see China stirring,” Beaulieu said. “There’s enough light at the end of the tunnel for me to be encouraged.” He said there “are signs of demand somewhere” in China for machine tools.

Beaulieu also predicted the dollar will weaken against the euro and yen as economies in Europe and Japan improve late this year and into 2017.

The economist said manufacturers should plan for higher interest rates by borrowing in early 2016. He also said companies need to plan for higher wages and energy costs.

“Borrow money now before interest rates go up,” Beaulieu said. Interest rates are “going to add some pressure to your business, yes. But not as much as employees will.”

The economist’s presentation, however, wasn’t all upbeat.

Beaulieu is forecasting a relatively mild recession in 2019 and another “Great Recession” in 2030, brought on by governments unable to cope with their debt levels.

“In 2030, the federal government is broke,” he said. “I think Japan is first domino to fall. It’s a global event, driven by global debt.”